This article was last edited on 10/2/2020 and applies to tax returns filed in 2020 and earlier. For updated information on Form W-4, visit All About the Updated 2020 Form W-4.
Whenever your financial or personal situation changes, you need to update your income tax withholding allowances. If you start a new job, get married (or divorced), have a baby, or your household income changes for any reason, the amount you owe for taxes will also change. Forgetting to adjust your income tax withholdings means you could end up owing money to the IRS when you’re not expecting to.
Why are taxes withheld from my paycheck?
Rather than asking individuals to pay all their taxes at one time, the U.S. has a pay-as-you-go tax system. This means that anyone earning income must pay taxes throughout the year. When you start a new job, you fill out a Form W-4 that tells your employer how much income should come out of each paycheck for federal income tax.
What is an allowance?
An allowance reduces the amount of money that is held out of your paycheck for income taxes. For example, you are entitled to one allowance for yourself and one for a spouse if you are married. The more allowances you claim, the more money you will take home. Fewer allowances mean less take-home pay.
How many allowances should I take?
The information below is only for taxes filed in 2020 and earlier.
When you fill out the Personal Allowances Worksheet on your W-4, you enter a number for each allowance you are eligible to take on Lines A-G.
A – An allowance for yourself
B – Additional allowances depending on your family situation and employment
C – An allowance for your spouse
D – Allowances for your dependents.
E – One allowance if you file as Head of Household.
F – A possible allowance if you claim a deduction for childcare expenses on your tax return
G – Allowances if you plan to take the Child Tax Credit on your tax return
Adding the numbers from lines A-G gives you the total allowances you are entitled to claim, but you don’t have to take all of them.
If you take all the allowances you qualify for you will receive a bigger check each pay period. But if you don’t withhold enough from your income during the year, you could owe the IRS at tax time. Withholding too much, on the other hand, means you’ll get a refund from the IRS. .
How do I fill out my W-4 if I have 2 jobs?
Before 2020, if you had more than one job, you had a choice: you could divide your allowances between two W-4’s OR you could report all your allowances on one W-4. If you combined all your information on one form, the only allowance you would claim on your additional W-4 was yourself on Line A.
My spouse also works. Who should claim our allowances?
Prior to 2020, your spouse could also fill out a W-4 when they started a new job. You could combine all of your allowances and income on a single W-4 or divide them up. But you couldn’t claim the same allowances twice, so you needed to make sure things like dependents, childcare, child tax credits, and each other were only counted once. If your spouse was claiming all the allowances on their form, you would only claim yourself on Line A of your W-4.